Oil reverses gains, falls on China’s covid surge, firm dollar

SINGAPORE: Oil prices pared earlier gains and fell on Monday, dragged down by a firm US dollar and record high coronavirus cases in major Chinese cities that dashed hopes of the reopening of the economy of the biggest crude importer of the world.

Contracts for Brent crude and US West Texas Intermediate (WTI) had edged up nearly 1% earlier in the session but later reversed their trajectory and headed lower.

Brent crude futures were down 32 cents, or 0.3%, to $95.67 a barrel by 0725 GMT after settling up 1.1% on Friday while WTI crude futures fell 39 cents, or 0.4%, to $88.57 a barrel after closing Friday’s session 2.9% higher.

“USD strength appears to be weighing on oil and the broader commodities complex this afternoon,” said Warren Patterson, head of commodities strategy at ING.

“There probably is also an element where the market got a bit ahead of itself on Friday following an easing in China’s covid related quarantine measures,” Patterson said.

Commodities prices rallied on Friday after China’s National Health Commission adjusted its covid prevention and control measures to shorten quarantine times for close contacts of cases and inbound travellers and eliminate a penalty on airlines for bringing in infected passengers.

But covid cases climbed in China over the weekend, with Beijing and other big cities reporting record infections on Monday.

China’s demand for oil from world’s top exporter, Saudi Arabia, also remained weak as several refiners have asked to lift less crude in December.

Separately, US treasury secretary Janet Yellen said on Friday that India can continue buying as much Russian oil as it wants, including at prices above a G7-imposed price cap mechanism, if it steers clear of Western insurance, finance and maritime services bound by the cap.

A firm dollar after comments from US Federal Reserve governor Christopher Waller also weighed on oil.

Waller said on Sunday that the Federal Reserve may consider slowing the pace of rate increases at its next meeting, but that should not be seen as a “softening” in its commitment to lower inflation.

“This leans towards the sticky inflation or recession narrative which is negative for oil and other risk markets,” said SPI Asset Management managing director Stephen Innes.